General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India

Public employment programs play a major role in the anti-poverty strategy of many developing countries, but their impact on poverty reduction could be attenuated or amplified by changes they induce in private labor market wages and employment. We estimate these general equilibrium effects using a large-scale experiment that randomized the roll-out of a technological reform, which significantly improved the implementation of India's public employment scheme, across 157 sub-districts of 60,000 people each. We find that this reform increased the earnings of low-income households by 12.7%, and reduced an income-based measure of poverty by 17.2% despite no increase in fiscal outlays on the program. These income gains were overwhelmingly driven by higher private-sector earnings (90%) as opposed to earnings directly from the program (10%). We find that improving implementation of the public employment scheme led to a 6.2% increase in private market wages for rural unskilled labor, a similar increase in reservation wages, and a 7.1% reduction in days without work. We find no evidence of changes in private employment, migration, or land use. Our results highlight the importance of accounting for general equilibrium effects in evaluating programs, and also illustrate the feasibility of using large-scale experiments to study such effects.

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